As you begin the estate planning process, one of your primary goals may be to provide income to your heirs. There are many ways to accomplish this goal, of course, but annuities are becoming an increasingly popular method of fulfilling those wishes. Read on to discover five ways an annuity can provide income to your heirs after your death.
Creditor protection. In some jurisdictions, annuities enjoy protection from creditors. This can be important if you want to ensure that you pass income to your beneficiaries without risk of the money being subject to collection action. Of course, you should check with your estate planning attorney to discover whether this is the case in your area.
Provide income for heirs outside a trust. If you want to provide income for certain heirs who are not covered by a trust, an immediate annuity could be the perfect solution. The trustee will use money in the trust to purchase the annuity, which guarantees payments to beneficiaries without the need for management of a portfolio of investments.
You want payments to begin at a future date. Let’s assume that you want to pass income to your children, but you don’t want the payments to start until they have finished college or passed some other milestone. In this case, a deferred annuity could provide the answer. Taxes on all gains are deferred, which could be important when the annuity is owned by a trust subject to a compressed tax rate.
The security of an annuity allows you to take risks – and reap possible rewards – elsewhere. You want to leave a legacy for your heirs, but not at the expense of your own financial stability while you’re still alive. For many people, this means that they invest the retirement savings conservatively. They earn enough to live, but lower-risk investments often don’t build much capital. But when you enjoy the income security of an immediate annuity to cover living expenses, you might feel more confident about aggressively investing your extra assets. Keep in mind that income payouts are based on the claims paying ability of the underlying insurance company and aggressive investments may not be suitable for individuals with a low risk tolerance.
Provide income for heirs who are not able to manage a lump sum bequest. Estate planning means considering not only your own money, but also how your gifts might be used. If you want to leave income to an heir who, for whatever reason, is not able to manage a lump sum of money, an annuity can accomplish that goal without risking loss of the funds.
There are many more ways in which an annuity can comprise an integral part of your estate plan, such as protection from taxation and other complicated legal issues. Talk to your estate planning attorney and your financial advisor to determine what role annuities could play in your decisions.